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Published on : Jan 27, 2014

According to a Renaissance Capital report released yesterday, the consumer companies are likely to witness a full recovery in 2014 after most of the challenging year like 2012 and 2013 in the field of consumer goods and packaging. The companies will face minimal improvement in the coming years ahead.  

This calls for the operators of the Fast Moving Consumer Goods (FCMG) industry in the country to be on their highest alert and guard as the consumer goods sector has been augured to record any petty marginal improvements for the year 2014. 

However, this type of an outlook has affected the rigorous business environment reforms that were embarked upon by the Federal Ministry of Industry Trade and Investment, keeping only one primary objective in the process – promoting the industrial sector growth through business sources such as FCMG sector that are augured to face blighted prospects in the year 2014.  

The Nigerian consumer companies faced the utmost challenging conditions in the year 2012 and 2013 because of the reported slowing growth, and the outlook for 2014 is only in the marginal recovery in the consumer environment, stated the report. 

Today, Nigeria is in a stronger position citing the country’s population size, growth outlook and the strong Gross Domestic Product (GDP) growth forecasts, as well as, the current low penetration of various foods and beverages in the world. 

Nigeria is on the brink of more years of growth and has significant opportunities for the consumer market to expand in the region. 

Today, competition has heightened and the country that is fully involved in building solid bases in terms of brands and infrastructure will be steps ahead of the competition in the near future. 

Renaissance Capital identified Nestlé as its utmost Nigerian consumer company stating that its choice of Nestle had more consistent earnings track records and a superior access to the foreign management practices in the industry. 

The analyst said that the Nestlé SA plays a major role in the strategy and management of the company and in all its global subsidiaries. Nestlé is leaps and bounds ahead of its infrastructure and among other peers in transforming its distribution model to different regions in Nigeria.

The forecasts predict that Nestlé, Cadbury Nigeria, and Unilever Nigeria are currently dealing and trading on mutual Price-Earning ratios (P/E ratios) with the Unilever at a premium to Nestlé.

The forecast uses a forward exit P/E of 30x to derive a TP for Nestlé of NGN1, 320 (previously NGN1, 100). The Unilever value is at a 10 percent discount to Nestlé, and an exit P/E of 27x, which is derived at a TP for Unilever of NGN55 (previously NGN64). Nonetheless, the value of Cadbury is at a further 10% discount to Unilever, given the lack to visibility and management around earnings. The main concern is about the margins which are unsustainable and on a forward exit P/E of 24x, that is derived at a TP for Cadbury of NGN91 (after consolidation shares), vs NGN48 previously (NGN80, adjusted for the consolidation of shares).